"Kutner got it all right. Not part but all!"
---------------
John, Kutner probably got it wrong, not part but all.
Kutner writes: "The deeper scandal here is ideological."
This is from a standard introductory accounting text from forty years ago which had already gone through eight editions, the emphasis is mine:
"When properties or services are purchased by a business, the amount at which they are recorded is the price agreed upon to the business transaction. For example, if a business building is purchased for $50,000, that amount is used in the buyer's accounting records. The seller may have been asking $60,000 for the building up to the time of sale; the buyer may have initially offered $40,000 for it; the building may have been assessed at $35,000 for property tax purposes and insured for $45,000; and the buyer may have received an offer of $75,000 for the building the day after he acquired it. These values have no effect on the accounting records because they don't originate from an exchange transaction. The transaction price, or cost, of $50,000 determines the basis at which the building is recorded. Cost results from the actions of an informed buyer and an informed seller who are each attempting to obtain the most favorable price. It is an objective fact that can be verified from the evidence created by an exchange transaction; it is not a mere subjective opinion."
Compare this to the shenanigans of Enron and its affiliates, all signed off on by its accountants and lawyers, graduates of the most prestigious schools, which were nothing but FICTITIOUS transactions not between informed buyer and seller, but between Enron itself and its own affiliates. Not only not signed off on but CREATED by the accountants and lawyers.
Ideological, my word.
You don't have to be liberal or conservative, Democrat or Republican, monetarist or Post Keynesian to see it!
>From: "John Gelles"
>To: "Cyberspace Society" , "Post Keynesian Thought" , "Victory Over Want"
>Subject: Kuttner, Enron and the Chicago Ideology
>Date: Fri, 8 Feb 2002 12:40:58 -0800
>
> Kuttner get it all right. Not part but ALL!
>
>============== Kuttner follows ==============
>
>Copyright 2000-2001, by The McGraw-Hill Companies Inc.
> All rights reserved
> BUSINESS WEEK FEBRUARY 4, 2002
> ECONOMIC VIEWPOINT
> By Robert Kuttner
>
>ENRON: A Powerful Blow to Market Fundamentalists
>
>The deepening Enron Corp. (ENE ) scandal should
>hose away an entire world view about how capitalism
>is supposed to work. But will the right lessons be
>drawn?
>
>As a political scandal, Enron threatens the Bush
>Administration. No corporation was closer to the
>Bush family and its Republican allies. No corporation
>was more political in gaming the system to get the
>rules written in its favor. The White House damage-
>control machinery contends that if the President did
>not try to rescue Enron on the way down, his hands
>are clean. The real scandal, of course, is how the
>GOP and its broader world view helped Enron rig
>the rules on the way up.
>
>The deeper scandal here is ideological.
>
>Enron epitomized an entire philosophy about
>the supposed self-cleansing nature of markets.
>Republicans are the more devout practitioners
>of this ideology, but both parties are implicated.
>
>Enron, as a trading enterprise, claimed to be
>the quintessence of a pure free market.
>In practice, it was up to its ears in cronyism,
>influence-peddling, rigging the rules to favor
>insiders, and undermining the transparency
>on which efficient markets depend.
>
>Transparency, in turn, demands regulation in
>the public interest.
>
>There is no getting around the need for
>regulation, since capitalism itself requires rules
>that govern everything from rights to financial
>and intellectual property to constraints on
>opportunistic practices that undermine the
>efficiency of a market system. If you think
>capitalism can operate in the absence of
>vigorous, competent, and public-minded
>government, look at Moscow or Buenos Aires.
>
>And government requires politics not corrupted
>by bribery. For it is democratic politics that
>elects the officials who make and enforce
>efficient rules--or don't.
>
>But for three decades now, the dominant strain
>of economics from the University of Chicago has
>been teaching gullible undergraduates and journalists
>that there is no such thing as the public interest.
>
>Efficient outcomes are just the aggregation of selfish
>private interests, and government's main job is to get
>out of the way.
>
>Well, after Enron, these theorists should learn some
>other useful trade.
>
>Even conservatives who reject other forms of
>government intervention grudgingly concede the
>need for a Securities & Exchange Commission.
>Entrepreneurs and traders are not saints.
>Deregulation is no cure-all, because decisions
>about which rules to waive are every bit as
>politicized as the decisions to regulate.
>
>We've seen the corruption of deregulation in
>every imperfect-market realm from electricity
>to banking to copyright law to airlines, hospitals,
>and telecom. None of these is an absolutely
>efficient free market; each one requires rules.
>
>And in all of these realms, whether they are
>regulated or deregulated, corporations seek
>to game the system and rig the rules.
>
>But Enron took the prize. It not only cooked
>its books. It used its extensive political influence
>to cook the regulatory system itself. When a
>public-minded chairman of the Federal Energy
>Regulatory Commission stood in Enron's way,
>Chairman Kenneth L. Lay paid a call and the
>offender disappeared.
>
>Wendy Gramm went from being head of the
>Commodity Futures Trading Corp. under Bush I
>to the Enron board. Her husband, Senator Phil
>Gramm (R-Tex.), helpfully ensured legislation
>allowing Enron to evade policing either from the
>CFTC or the SEC.
>
>At the SEC, Arthur Levitt spent eight years
>trying to toughen regulation so that corporations
>would keep honest books and auditors would
>not also be retained as business strategists and
>spin-doctors. For this public service to capitalism,
>Levitt was widely vilified. His successor, Harvey
>Pitt, came directly from lobbying for the
>accounting firms who were against
>Levitt's proposed rules.
>
>The difference between the Enron scandal
>and the superficially similar Long-Term Capital
>Management affair is that LTCM essentially
>operated beneath everyone's radar.
>
>Enron, by contrast, worked to take out the
>radar stations.
>
>The Houston company systematically used
>its ample political connections to rig the rules--
>on trading, audits, disclosure, and the mechanics
>of energy markets. The other difference is that
>LTCM's dupes were ostensibly sophisticated
>consenting adults. In the Enron case, a lot of
>innocent people got badly hurt.
>
>None of this is new--only the particulars are
>different. The last time we learned the broad
>lesson that capitalism is not self-regulating, it
>took a Great Depression that was followed by
>a reformist Democratic Administration.
>
>This time, there are no catastrophic wider
>effects (yet), and the incumbent Republican
>Administration still champions the ideology of
>laissez-faire and the politics of cronyism.
>
>But Enron is to the menace of market
>fundamentalism what September 11 was
>to the peril of global terror--a very costly
>wake-up call. Our political leaders should
>pay as much attention to this assault on the
>very heart of capitalism as they paid to the
>other one.
>
> Robert Kuttner is co-editor of
> The American Prospect and author
> of "Everything for Sale."
>
>Copyright 2000-2001, by The McGraw-Hill
>Companies Inc. All rights reserved
>